David Cameron's government expected to get to grips with its debt burden much
quicker than Francois Hollande, ratings agency says

Francois Hollande's efforts to tackle France's ballooning deficit and kickstart its flagging economy have left the country trailing behind rivals such as the UK, Moody's has warned.

Pointing to many unanswered questions as to how the President plans to cut public spending by €50bn (£39.5bn) by 2017, the ratings agency slashed the country's growth forecasts and said it is "likely" to miss fiscal targets for 2014 and 2015.

Moody's now expects France to grow by 0.6pc in 2014 and 1.3pc in 2015, down from previous estimates of 1pc and 1.5pc respectively.

Moody's - which rates France at Aa1, the same as the UK but behind Aaa-rated economic rivals such as Germany - added that "France's fiscal performance remains weaker than that of other Aa1 countries, hence its negative outlook, and is significantly weaker than Aaa-rated countries".

Directly comparing the UK with France, the agency pointed out that although the two economies are similar at the moment, David Cameron's government is expected to get to grips with its debt burden much quicker than President Francois Hollande.

"While headline debt and deficit numbers for France and the UK do not differ significantly at the moment, the UK has a stronger track record of fiscal consolidation, will see its debt burden peak at a lower level and has already been able to execute a very significant package of expenditure cuts since 2010," Moody's said.

France has been given a two-year reprieve to bring its public deficit under 3pc of GDP next year but the European Commission and the IMF expect the country to miss this target next year.

Mr Hollande's government has repeatedly ruled out breaching its own plans to slash public spending to meet the target, instead urging Germany and the European Central Bank to do more to boost growth across the eurozone.

Moody's believes questions remain as to where France will make the "undprecendented" cuts to get its economy back on track.

"Moody's notes that 60pc of the planned expenditure cuts for 2015-17 remain unspecified, a vulnerability that has also been highlighted by both French domestic institutions such as the Cour des comptes and international observers including the European Union and IMF," the agency said.

"Moreover, the unprecedented scale of France's fiscal consolidation programme subjects it to significant implementation risk. In particular, restrictions on healthcare expenditure growth are more constraining than they were in the past, and cuts to social transfers are politically unpopular."

Should all the cuts be achieved successfully, Moody's concedes this would be a "credit positive" event.

However, with a jobless rate expected to remain above 10pc this year before rising to 10.2pc in 2015, some analysts believe France will struggle with its economic problems for some time to come.

"Despite repeated efforts to revive the reform momentum, political and economical woes are there to stay. France is set to experience a prolonged period of weaker growth, weaker than historical averages and weaker than European average," Fabrice Montagne, a senior economist at Barclays, said recently.

"With reforms and fiscal consolidation being implemented at best sequentially over the years, benefits on growth and unemployment will also only trickle through slowly and gradually."

The Telegraph Investor

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